An Empirical Study of Observational Learning
66 Pages Posted: 20 Sep 2013 Last revised: 13 Jun 2015
Date Written: May 28, 2015
This paper is an empirical examination of observational learning. Using data from an online market for music, I find that observational learning benefits consumers, producers of high-quality music, and the online platform. I also study the role of pricing as a friction to the learning pro- cess by comparing outcomes under demand-based pricing to counterfactual pricing schemes. I find that employing a fixed price (the industry standard) can hamper learning by reducing the incentive to experiment, resulting in less consumer surplus, but more expected revenue for the platform.
Keywords: Observational Learning, Online Markets, Recorded Music, Search Goods, Demand-Based Pricing
JEL Classification: L15, L82, M31, D83
Suggested Citation: Suggested Citation